Netflix Screaming Higher on Streaming Success

Posted Aug 17th 2010 2:00PM by Wade Hansen
Filed under: Netflix, Inc. (NFLX), Stocks to Buy

Netflix's (NFLX) stock price is screaming higher as more and more of its users are streaming their media -- which is enabling Netflix to shift money away from paying postage and into expanding its video library.

With these freed-up resources, the company announced it is going to pay nearly $1 billion during the next five years for the online streaming rights to movies from Paramount, Lionsgate and MGM.

This should enable Netflix to keep expanding its user base of 15 million subscribers and continue pushing earnings, and the stock price, higher.

Here's what I am seeing.

Netflix broke out of a bullish flag continuation pattern on its stock chart a week or so ago when it broke above its down-trending resistance level at $120.

Typically when we see the completion of a continuation pattern like this, we look back to the previous uptrend to determine a price target for the breakout. In Netflix's case, the stock rose $45 from $60 to $105 before entering the consolidation pattern -- which gives us a potential price target of $165 ($120 + $45) on this most recent breakout.

Analyst Expectations: Looking ahead to next quarter's earnings announcement, analysts expect Netflix to earn $0.72 per share -- which is $0.2 more than the company made during the same quarter last year.

Caris & Company, one of the last firms to issue a rating on Netflix, reiterated its coverage with a Above Average rating and adjusted its price target from $130 to $168..

Fundamental Analysis: Netflix has a decent fundamental outlook -- based on the return on equity (ROE) the company is providing.

Netflix has an ROE of 54.63%. The company is providing a fabulous return to its owners.

Technical Analysis: Netflix has gained 9.21% during the past month and is currently trading above its 20-day, 50-day and 200-day moving averages.

Disclosure: Hansen does not own shares of the stock discussed above. Positions can change without notice.

Tags: inthenews, netflix, nflx